Online Ads, Search Drive Yahoo's Q1 Growth

Yahoo achieved a record-setting financial performance in the first quarter, thanks to strong growth in its online advertising and search marketing businesses, the Sunnyvale, CA, company reported yesterday.

Marketing revenue was $635 million, representing nearly 50 percent organic growth in its marketing services. Most of that growth came from its acquisition of paid listings provider Overture Services.

Overall, Yahoo reported net income of $101 million, up from $47 million in the year-ago period. Yahoo took in $550 million in sales compared with $283 million for the same period a year earlier. Both figures exclude the fees Overture pays to distribution partners like MSN that display its paid search ads.

"I'm very happy to announce this is by far the best quarter in our company's history," Yahoo CEO Terry Semel said in a conference call with investors.

Based on its first-quarter numbers, Yahoo bumped up its forecast for the full year. It expects revenue (excluding Overture partner fees) of $2.4 billion to $2.5 billion and operating income before depreciation and amortization of $890 million to $970 million.

Semel said Yahoo continued to see strong demand for advertising from the auto, finance and entertainment categories. Yahoo made progress in deepening its relationship with large advertisers, he said.

"I think we are just at the beginning of our ability to talk to larger advertisers and satisfy a much greater need of theirs," he said.

The company said its board of directors approved a 2-for-1 stock split, set for May 11.

Yahoo continued to expand its audience during the quarter, adding 900,000 registered users. It ended the quarter with 141 million registered users, up 26 percent from a year earlier.

The company attributed its strong sales growth largely to recent acquisitions, including its October purchase of Overture.

"This is just the beginning," Semel promised. "We will continue to expand search technology to all areas of Yahoo and continue to focus on personalization."

Semel, who is about to mark his third anniversary with Yahoo, invested $2.5 billion to acquire search technology companies, most recently inking a deal to buy European comparison-shopping search engine Kelkoo for $575 million.

Yahoo replaced Google with its own Web search technology in February. It also took its first steps in local search with its SmartView technology on Yahoo Maps.

Yahoo has made strides closing the gap with Google, although it remains No. 2 in the search market. According to comScore Media Metrix, Google ended January with 32.5 percent of searches to Yahoo's 31 percent.

Semel did not address Google's recent announcement that it will roll out a free e-mail service, Gmail, which will compete directly with Yahoo Mail and MSN's Hotmail.

Yahoo also made progress in expanding its base of paying customers. It ended the quarter with 5.8 million subscribers for services ranging from its co-branded broadband deal with SBC to its dating and auction services. Yahoo forecasts it will have 8 million paid relationships at the end of the year.

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